By Likeleli Monyamane
In any business 101 class, you will learn the importance of capital to start, grow, and maintain a business. Capital is vital to enable entrepreneurs to buy income-generating assets at the beginning stages of their business. Working capital is critical to ensure that a company has the necessary liquidity to run (cash to pay suppliers to provide the relevant goods and services). Without access to capital, it is impossible to start a business. Some great and viable companies have failed due to a lack of access to working capital.
The International Finance Corporation (IFC) reports that formal, women-owned businesses have a financing gap of $300 billion worldwide. Additionally, 70% of women-owned SMMEs have inadequate or no access to financial services (IFC,n.d.). This lack of access to capital is one of the significant challenges faced by women entrepreneurs in Lesotho.
The result is that aspiring entrepreneurs lack the funds to start their businesses. Those who manage to scrape together some cents start companies that cannot grow into impactful businesses, and some struggle in their businesses until they must close them down. The main reason is that funding for entrepreneurship is still underdeveloped in Lesotho. The main funders are from the banking system – which generally does not have the risk appetite for funding entrepreneurs.
In a mature system, different types of funding are available to various phases of the entrepreneurial journey. This may be micro-loans, angel investor funds, venture capital funds, private equity, public capital markets funding, and debt. Basotho entrepreneurs are primarily funded through debt, micro-loans, and grants. This means that Basotho women entrepreneurs must figure out how they can adequately support their businesses themselves.
How can Mokhatlo funds be used to advance women-owned businesses?
Most Basotho women are part of Mekhatlo (societies / stockvels). Mekhatlo are informal financial associations formed by groups of people who know each other to contribute a fixed amount of money monthly. Usually, these groups are formed as a credit vehicle to enable lending of funds to members. They also serve as a savings vehicle to encourage disciplined savings. The money is split at the end of the year for members to spend as they please. Most of these groups are formed for consumption and not for long-term investment.
South African savings groups have evolved from buying groceries to investing in properties and businesses in recent years. For example, in 2020, the THUDmoney Franchise Stokvel was formed to generate funds to invest in franchises all over South Africa. Their goal is to own 100 franchises by the end of 2026. These savings groups provide a vast economic opportunity as they are valued at R50 billion annually by the National Stokvel Association (NASASA). While the value to the Mekhatlo economy is not valued in Lesotho, I do believe that it holds equal proportional value.
Since Basotho women are the prominent participants in the Mekhatlo economy, there is an opportunity for them to collectively invest in women-owned businesses. This will provide these businesses the funding they so desperately need and contribute to closing the existing gender funding gap. The impact will be increased jobs created and economic growth. There is also an opportunity for women to start businesses focused on solving specific challenges that Mekhatlo faces. These could be grocery purchasing and delivery services. There is also an opportunity to develop tech solutions to help Mekhatlo members transact with each other and keep better records. Even a marketplace to connect businesses looking for funding with groups who are interested in investing in companies. Accounts such as the Mokhatlo Savings Account by Mpesa is meant to solve part of the problems that Mekhatlo faces. However, there is still more opportunity for business solutions to be developed to solve Mekhatlo’s needs.
What support structures should be in place?
It is crucial to note that the opportunities provided by the Mekhatlo economy will need to be supported by specific initiatives for the efforts by Mekhatlo members to invest to be sustainable. Firstly, more research should be undertaken to understand the Mekhatlo economy in full and gain insights into the lending and consumption behaviours of Mekhatlo members. This will enable the development of solutions (investment and otherwise) that can truly meet the needs of Mekhatlo members. Furthermore, Mekhatlo members should be empowered to exercise their economic power as potential investors and consumers more responsibly. This can be done by availing expertise to help Mekhatlo groups structure financing deals that meet their risk appetites. Additionally, Mekhatlo members must have access to financial education to empower them as potential investors and consumers to make empowered decisions. Finally, the regulatory environment should evolve to make it easier for Mekhatlo to invest in businesses and protect both Mekhatlo and businesses where such transactions have taken place.
